The illegal market is reviving

The budget lost 823 million euros due to the illegal cigarette market - KPMG.

The market for illegal cigarettes in European countries has been growing for the fifth year in a row, almost every tenth unit is illegal. In Ukraine this figure is higher

Last year, 35.2 billion illegal cigarettes were purchased in Europe, representing 8.3% of total consumption in the region. That's up 0.1 percentage point from 2022, KPMG's 2023 annual study said.

Counterfeit cigarettes are one of the main sources of the illegal market in the region, accounting for 36% or 12.7 billion cigarettes. EU governments lost around €11.6 billion in taxes, €300 million more than in 2022.

The leader is France, where 16.8 billion illegal cigarettes were consumed last year, and budget losses are estimated at 7.3 billion euros.

“We are seeing the evolution of organized crime groups in Europe as they increasingly locate production facilities closer to Western European countries. “We believe this phenomenon is a consequence of failed policy approaches that have failed to adequately curb illegal trade and reduce smoking prevalence, putting consumers, governments, legitimate businesses and society at risk,” said Christos, senior vice president of corporate affairs at Philip Morris International. Harpantidis.

Interviews conducted with law enforcement agencies during the study indicate the professionalization of transnational organized crime in the illicit cigarette supply chain. Criminals are opening more illegal cigarette factories.

In 2023 alone, at least 113 clandestine sites were dismantled in 22 European countries.

The consumption of counterfeit cigarettes, which has been observed for the fifth year in a row across Europe, is mainly driven by the UK and Ukraine.

The latter remains the country with the second largest market in terms of the volume of illegal cigarettes consumed, amounting to 8.4 billion units.

The share of the illegal market in Ukraine, according to KPMG estimates, was 21.8%, and the amount of lost taxes was 823 million euros. This is an increase of 187 million euros compared to the previous year.

“The state is trying to solve the problem and what happened this year - four illegal factories were closed - is very important. This is an attempt to solve the problem locally, within the country,” says Nicolas Otte, head of counter-illegal trade at Philip Morris International, about the situation in Ukraine.

He adds that the share of the illegal market is increasing due to the increase in excise taxes on cigarettes by 20% annually. Ukraine has made a voluntary commitment by 2025 to reach the minimum level of taxes on tobacco products in force in European countries, and it was supposed to be 90 euros per thousand pieces. In addition, a bill has been registered in the Verkhovna Rada, which provides for the calculation of the cost of excise taxes linked to exchange rates. Therefore, cigarettes will become even more expensive.

The KPMG report also states that in 26 European countries, the share of illegal consumption was less than 10% of total consumption. Of these, 16 markets account for less than 5%. In 25 of the 38 European countries included in the study, the share of illicit cigarette consumption remained stable or decreased compared to 2022.